We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like The Wendy's Company (NASDAQ:WEN).
The Wendy's Company (NASDAQ:WEN) was in 34 hedge funds' portfolios at the end of the third quarter of 2019. WEN investors should pay attention to an increase in hedge fund interest lately. There were 24 hedge funds in our database with WEN holdings at the end of the previous quarter. Our calculations also showed that WEN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
[caption id="attachment_30574" align="aligncenter" width="600"] Nelson Peltz of Trian Partners[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's review the fresh hedge fund action encompassing The Wendy's Company (NASDAQ:WEN).
What have hedge funds been doing with The Wendy's Company (NASDAQ:WEN)?
At Q3's end, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 42% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in WEN over the last 17 quarters. With the smart money's capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, Trian Partners was the largest shareholder of The Wendy's Company (NASDAQ:WEN), with a stake worth $532.1 million reported as of the end of September. Trailing Trian Partners was Horizon Asset Management, which amassed a stake valued at $51.3 million. Point72 Asset Management, Cardinal Capital, and Marshall Wace were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Trian Partners allocated the biggest weight to The Wendy's Company (NASDAQ:WEN), around 5.55% of its portfolio. Horizon Asset Management is also relatively very bullish on the stock, dishing out 1.54 percent of its 13F equity portfolio to WEN.
As aggregate interest increased, some big names were leading the bulls' herd. Armistice Capital, managed by Steven Boyd, initiated the biggest position in The Wendy's Company (NASDAQ:WEN). Armistice Capital had $20 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also made a $17.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Lee Ainslie's Maverick Capital, Philippe Laffont's Coatue Management, and Anthony Joseph Vaccarino's North Fourth Asset Management.
Let's also examine hedge fund activity in other stocks similar to The Wendy's Company (NASDAQ:WEN). We will take a look at Bilibili Inc. (NASDAQ:BILI), Grupo Aeroportuario del Sureste (NYSE:ASR), Ascendis Pharma A/S (NASDAQ:ASND), and Intercorp Financial Services Inc. (NYSE:IFS). This group of stocks' market values match WEN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BILI,18,383762,-5 ASR,4,38248,-3 ASND,33,2023367,0 IFS,3,9694,3 Average,14.5,613768,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $614 million. That figure was $893 million in WEN's case. Ascendis Pharma A/S (NASDAQ:ASND) is the most popular stock in this table. On the other hand Intercorp Financial Services Inc. (NYSE:IFS) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks The Wendy's Company (NASDAQ:WEN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on WEN, though not to the same extent, as the stock returned 7.3% during the fourth quarter (through the end of November) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.